Mirabela Nickel in critical financial condition as customer...

Mirabela Nickel in critical financial condition as customer walks away

Mirabela Nickel Ltd. was once a high-flying company, but it has plunged back to earth alongside poor nickel prices. An announcement this week shows the Toronto-listed miner is in deep trouble: one of Mirabela’s two customers (Votorantim Metais Niquel) is canceling a sales agreement, its cash costs are above its realized selling prices, and its capital expenditures are expected to be “materially higher” next year. Those issues raise serious concerns about the balance sheet, which is already burdened with high levels of debt.

“The company’s risk profile has increased dramatically,” CIBC World Markets analyst Tom Meyer wrote in a note, as he cut his price target 60% to just 4¢ a share.

The one positive thing for Mirabela is its US$79.7-million cash position, which buys the company some time to turn things around. But all the same, Mr. Meyer believes the debt holders “may ultimately determine the fate of the company and/or the value of residual equity.”

In the short term, Mirabela needs to find a customer to replace Votorantim, which is shutting down its smelter because of low nickel prices. The company has begun discussions with Norilsk Nickel (a current customer) and other parties, but Mr. Meyer suggested that it won’t be easy to strike a deal on reasonable terms.

“We believe Mirabela’s bargaining position is weak given funding requirements and the low nickel price environment. Offtake terms, therefore, may not be favourable.”

http://business.financialpost.com/2013/09/27/mirabela-nickel-in-critical-financial-condition/